The Conflicting Interests within PACER Plus

May 17, 2017

The Pacific Agreement for Closer Economic Relations (PACER) Plus revisits an original PACER agreement signed in 2001. This original PACER agreement existed as Australia and New Zealand’s response to the Pacific Island exclusive Pacific Island Countries Trade Agreement (PICTA), also signed in 2001, in an effort to include themselves in a free trade agreement with the region. Since April 20th of this year, Fiji and Papua New Guinea have refused to sign the finalized agreement, indicating that regional interests have not been equally represented.

The Pacific Agreement for Closer Economic Relations (PACER) Plus differs from typical free trade agreements in its emphasis on developing institutional and procedural structures to facilitate future trade and economic agreements. Most plans demand substantive reform in the present without setting up agencies to aid further development in the future. [1] PACER Plus, involving the fourteen Pacific Island Forum countries in addition to Australia and New Zealand, plans to be different by developing an economic platform for future negotiations. [2]

Even the negotiations for various aspects of PACER Plus demonstrate a push towards developing the Pacific Island Countries’ (PICs) limited economic and strategic capacity. [3] It may be argued that the PICs are inherently disadvantaged due to their small size, resulting in little to no economies of scale. Their distance and isolation from major markets also contributes to the challenges faced by businesses in PICs attempting to lower costs.

An independent advisory office, the Office of the Chief Trade Adviser (OCTA), was established to support the PICs in their capacity to negotiate for provisions of PACER Plus. [4] The office helps by commissioning research on PACER Plus and training trade officials from the Forum Island Countries to be able to better negotiate. [5] Funded by Australia and New Zealand but completely owned and under the control of the 14 PICs, the OCTA claims that PACER Plus will be beneficial for all participating members. [6]

However, the agreement does not guarantee that the various members’ interests are equally represented. Indeed, it has been argued that PACER Plus was formed by Australia and New Zealand in response to the PICs negotiating with the European Union for an Economic Partnership Agreement, forming the Pacific Island Countries Trade Agreement (PICTA). [7] Australia and New Zealand’s desire for the first and best access to the Pacific markets likely motivated their push for the PACER Plus agreement in order to maintain and strengthen their economic influence over the smaller islands.

Pacific Island Countries

While it is debatable to what extent PACER Plus aligns with the PICs interests, the provisions of the agreement seem to aid rather than detract from the PICs’ economic development. According to the agreement, New Zealand and Australia would help PICs implement the agreement and develop their economies by committing to provide both financial and technical assistance. [8] The assistance attempts to address supply-side constraints that have previously prevented PICs from taking advantage of market access under other trade agreements such as South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA). [9] With the assistance, the PICs would be able to utilize the greater access they would have to the Australian and New Zealand markets under PACER Plus. This would lower import costs for markets in PICs, and, in turn, benefit their economic development, lowering business as well as consumer costs.

Furthermore, while PACER Plus requires eventual tariff elimination, [10] PICs are not required to take the same level of liberalization as Australia and New Zealand initially, and the gradual period of implementation will differ for each PIC, taking into account their specific case. [11] Therefore, PICs do not have to face an unhealthy amount of competition and open up their markets prematurely. The level of competition will rise, which will increase the quality of goods and services while lowering the prices for consumers. This would stimulate further innovation in PICs as a result of the free trade agreement.

Due to the collective nature of the PACER Plus agreement, PICs that normally would not attract substantial independent foreign investment would begin to receive more investment. [12] Therefore, PACER Plus does indeed benefit PICs, even if not to the extent that PICs like Fiji desires.

In fact, Fiji threatened to withdraw last year in September from the agreement as it did not feel like the negotiations sufficiently addressed its interests. [13] Instead, it felt negotiations were being oriented towards Australia’s and New Zealand’s interests. During negotiations last fall, Fiji remained firm on its stance, stating that the agreement had to address enough of their concerns for them to sign it. [14]

Australia and New Zealand

Due to the controversy, much of the public promotion of PACER Plus focuses on how the agreement may benefit PICs. However, it is also important to note how Australia and New Zealand may benefit from the agreement in a variety of ways, especially as the agreement focuses more on creating a platform for future free trade expansion and features relatively little direct monetary investment from Australia and New Zealand. [15]

Reduction of export costs of goods and services are a straightforward way Australia and New Zealand plan to benefit from successful implementation of the PACER Plus agreement. PACER Plus relies primarily on attempting to improve and clarify customs procedures and trade requirements between the PICs, along with a “gradual removal” of import duties among the PICs, Australia, and New Zealand. The aim would be to lower production and import costs in a mutually beneficial manner, while assisting the PICs by integrating them into the global economy. [16]

Under this agreement, consumers and firms in the PICs can gain access to cheaper goods from each other and Australia and New Zealand, reducing production costs. Subsequently, the agreement has potential to help grow small, nascent business in the PICs. However, Australian and New Zealander consumers will also have access to cheaper goods and services, from the PICs. [17] Removal and streamlining of import duties and trade regulations between these countries also opens up the smaller, emerging PICs markets to bigger corporations from Australia and New Zealand. [18] To an extent, larger corporations’ access to the smaller PICs markets would be mutually beneficial, as PICs consumers can gain access to a wider range of goods. This move would become questionable if larger corporations’ subsequent benefits become disproportionate to smaller PIC firms’ benefits.

Conceptually, it would also be reasonable to imagine Australia and New Zealand pursuing PACER Plus on the grounds of seeking political leverage, domestically and abroad. Establishing – or at a minimum, reaffirming – partnership with the PICs would extend the reach of Australia and New Zealand’s influence abroad. If PACER Plus proves successful, the diplomatic fruits of such a strengthened relationship may provide a stronger platform for profitable future trade agreements, as the PICs countries grow. PACER Plus may also work as a political tool both domestically and within a larger international context, as its success would improve Australia’s and New Zealand’s image as benevolent, effective, free-trade actors.

As the PACER Plus agreement attempts to improve the PICs’ trade capacity, it focuses a lot on directly developing business opportunities that can lead to longer term growth. In this sense, Australia and New Zealand’s stakes lie in setting up the foundations of growth and attracting foreign direct investment (FDI). If Australia and New Zealand successfully implement PACER Plus, there would be much to gain on their end. The agreement, on the most fundamental level, opens up trade and flow of goods and services throughout all of the countries involved, allows Australian and New Zealander consumers to gain access to specific goods and services offered by the PICs at lower costs, and gives larger firms greater access to the PICs markets. PACER Plus, if successful, will create growth in the region that, as a result, opens up opportunities in the future for more agreements that might help compound on the benefits gained through PACER Plus.

Conclusion

On balance, based on the provided evidence, while the PICs may stand to benefit from the PACER Plus agreement, Australia and New Zealand, stand to gain more. Most significantly, their larger firms can more easily penetrate the PICs market, and the PICs would encounter short term losses of government revenue with the gradual lowering of tariffs that would be more hurtful relative to the size of the PICs than the losses Australia and New Zealand would face. Whether the PICs are willing to take on the benefits of PACER Plus at these costs lies in the judgement of their leaders.

Recent actions have suggested that the continued negotiations did not fulfill those desires. As of April 20th this year, Fiji and Papua New Guinea, two of the largest PICs, have opted out of signing the final text for PACER Plus while the other countries have concluded negotiations. [19]

PENN WHARTON PPIRESOURCE SPOTLIGHT:

<h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>

<h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>

<h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>

<h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> ﻿Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>

<h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>

<h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>